APCA New Directions for Agricultural Policy Daryll E. Ray University of Tennessee Agricultural Policy Analysis Center Farm Bureau Farm Policy Forum Washington D.C. April 15, 2011

APCA Long-Term and Shorter- Term Considerations Long-term: Past, present, and future configurations of U.S. agricultural production –Food/fuel to exports back to food/fuel? Shorter-term: Safety net rhetoric vs reality –Direct payments and revenue insurance –Etc.

APCA Configurations of U.S. Agriculture At one time, configured to produce fuel as well as food/feed/fiber –Firewood –Oats, hay, pasture for “horsepower” –Part of a very diversified agriculture Crop rotations Livestock on nearly every farm Provided own weed/pest/plant nutrient measures Even for years after gasoline replaced oats as a horsepower fuel, farms continued diversified

APCA Configurations of U.S. Agriculture Export-driven production configuration last part of the 20 th century –Crop exports exploded in the 1970s –U.S gobbled-up those 1970s exports – Production configuration moved to Specialized crop production (corn/soybeans) Livestock on few farms (one specie if any) –Exports fell and leveled off in 1980s Revamped policies to “get back our rightful share of exports”

APCA Configurations of U.S. Agriculture One vision for the future is a return to a fuel/food/feed/fiber configuration of US agricultural production that –Better utilizes agriculture’s resource base to simultaneously Produce an expanded share of the U.S.’s motor fuel needs While continuing to fully supply domestic and export quantities of food/feed/fiber –Improves soil quality and productivity

APCA Back to the Future? Only in the sense of general categories of output –21 st century technologies –21 st century soil and environmental considerations Michigan State University researchers provide one visual comparison of –Today’s configuration of US agriculture –And an example of a future energy/food/feed/fiber agriculture

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APCAAssumes… Continued investments –Ethanol delivery infrastructure –Flexible fuel vehicles –Fermentation/enzyme technologies –Commercial development of synergetic animal feed/ethanol technologies that improve digestibility and availability of protein Additional acreages of cellulosic biomass crops, including perennials such as switchgrass or Miscanthus

APCA Some Net Impacts Improved soil quality/productivity –Increases soil organic matter –Promotes diversity of organisms –Reduces erosion and water retention –Increases sequestered carbon –Additional crop diversity and revenue sources for crop farmers Reduces need for imported oil –Improves balance of payments –Reduces need to defend interests in Middle East

APCA That’s nice but what about the present?? Well, it seems we have it all backwards –What is least important right now is receiving the most attention Agriculture does not need direct payments or insurance that ensures extraordinary profits Safety net? Safety net for what?? –While continuing needs are being ignored or marginalized Nutrition/conservation/energy independence Protecting farmers when priced are low Protecting availability/prices for users

APCA Safety Net for What? Direct payments… –Are paid even though prices are well north of all costs –Are an embarrassment whether in rural cafes or visiting our city cousins –And yet there are demands to continue them in the next farm bill Why? Well, because otherwise there would be virtually no “baseline” money for farm programs (also some special circumstances for rice and cotton) Not because they make sense as a safety net (they don’t, of course—totally inadequate when prices collapse)

APCA Safety Net for What? Revenue insurance products… –Receiving considerable attention –Protect farmers “pure” profits when prices are really high—could cost tens of billions to do so –When (not if) prices fall and remain below the cost of production, revenue insurance products “guarantee” a percentage of those below- cost prices (these guaranteed prices could be well below variable costs) –A safety net that plummets along with prices??

APCA Is a Safety Net Needed? Yes, even with the “future configuration of agricultural production” –Agriculture would still need a safety net Low prices in agriculture do not self-correct in a timely fashion (low prices do no cause farmers to idle fields nor consumers to eat 5 meals per day) What if U.S. exports were unleashed with a WTO-like free-trade agreement?

APCA US and World exports of Barley, Corn, Oats, Milled Rice, and Wheat, Million Metric Tons World Exports of 5 Grains US Exports of 5 Grains

APCA US and World Exports of Barley, Corn, Oats, Milled Rice, and Wheat, Percentage Percent US 5 Grains Exports as % of World

APCA US and World exports of 5 Grains and Soybeans, Million Metric Tons World Exports of 5 Grains and Soybeans US Exports of 5 Grains and Soybeans

APCA US and World exports of 5 grains and soybeans, Percentage Percent US 5 Grains and Soybean Exports as % of World

APCA So the US Share of World Exports Has Dropped Precipitously Percent US Soybean Exports as % of World Exports

APCA Policy for All Seasons A policy that –Protects farmers during “hard times” –Not piles on during the “good times” A policy that –Helps ensure supply availability for domestic and export markets (random policy and weather events will occur—plan for them) A policy that –Provides long-term sustained funding for conservation/environmental/energy/rural development/research

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